Beijing’s Social Contract is Starting to Fray

Even the most optimistic believers in the Chinese Communist party's prospects could not have foreseen its extraordinary run of good luck since the crackdown that took place in Tiananmen Square 15 years ago today. Isolated by the west and shaken by its near-death experience with a nationwide democratic uprising, the party was thought by many in 1989 to be finished. With the collapse of communism in the former Soviet bloc, no one expected that it could survive for long, let alone another decade and a half.

But today, few would dispute that the past 15 years have been the party's best. It not only survived the immediate aftershocks of Tiananmen and the collapse of Soviet communism, but has also thrived on nearly all fronts since. Economically, the party's drive for rapid growth has tripled China's gross domestic product. Internationally, the country is gaining respectability and influence. Domestically, the regime has kept a tight grip on power and prevented the emergence of any credible organised opposition groups.

One can attribute the party's success partly to its good luck and partly to the policies it was forced to adopt after Tiananmen. The acceleration of globalisation in the 1990s gave Beijing a huge boost as China became an attractive destination for foreign direct investment and gained competitive advantage as a low-cost manufacturer. From 1990 to 2003, more than $480bn in FDI flowed into China, accounting for 97 per cent of all FDI China has received since it opened up in 1979.

At home, Beijing's rulers determinedly pursued a so-called "neo-authoritarian" development strategy, which was centred on maintaining high rates of growth through embracing globalisation and economic reforms. Socially, the party allowed more personal freedoms. (For example, ordinary citizens can obtain passports for foreign travel in 10 days.) Politically, it mixed sticks with carrots, repressing dissidents who dared to challenge the party's authority while co-opting new social elites such as private entrepreneurs and professionals. The party has even withstood the shock of the information revolution. Predictions to the contrary notwithstanding, the government is now firmly in control of the internet-based flow of information within its borders.

However, Beijing's neo-authoritarian strategy, which has served the party so well since Tiananmen, is unsustainable. Its single-minded focus on high growth has produced massive financial and social problems (such as rising public debt, an explosive increase in non-performing bank loans, worsening inequality, environmental degradation and under-investment in education and public health). As a result, the implicit social contract between the party and the people - grudging acceptance of the party's rule in exchange for growing personal freedom and prosperity - is at risk of unravelling.

Most important, that social contract rests on fragile political foundations. Neo-authoritarianism is premised on a faulty understanding of the nature of autocracy. Many in the Communist party believe that authoritarian regimes are more capable of mobilising resources and achieving rapid economic growth than democracies. That is why demands for democratisation, even such as those peacefully expressed by the students in Tiananmen, must be suppressed.

Yet China's neo-authoritarians ignore the self-destructive logic embedded in a regime that allows no constraints on its power. Rulers in control of vast economic resources can too often be tempted to abuse their power for personal gain. Corruption soon becomes endemic. Eventually, the state that was supposed to nurture development degenerates into a predatory regime. China needs not look far for an example of such degeneration - Suharto's Indonesia was a textbook case of a neo-authoritarian regime falling prey to rapacious crony capitalism.

Despite all its economic achievements since Tiananmen, China's progress towards a more open and democratic society has stalled. Contrary to its promises, the party has done little to strengthen the rule of law or expand democracy. Predictably, unconstrained power has spawned perhaps the most voracious official corruption in Chinese history as many members of the party, sensing the unsustainability of the current status quo, rush to cash in their investment in the regime.

This destructive dynamic threatens China's future and the party's own survival. The Communist party must rewrite its social contract with the Chinese people and start a process of political reform before its luck runs out.